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Credit crunch hits school rebuilding programme

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The National Audit Office says councils are struggling to borrow money under the Private Finance Initiative to build schools fitted with new ICT

In a report on Building Schools for the Future (BSF), the programme to rebuild secondary schools and equip them with the latest technology, the NAO says that during 2008 problems in the banking sector reduced the money available to lend.

Of the £45bn predicted total spend on BSF, 10% will be allocated for new technology. As a result of the credit crunch, however, it has become increasingly difficult for local authorities to find lenders for the PFI deals used for BSF.

In October 2008 Kent CC was the last local authority to agree a PFI contract for its BSF programme. LB Newham intended to use the PFI to build two schools when it established a Local Education Partnership (LEP) between itself, a construction company and an ICT supplier in January 2009, but had to use conventional funding instead.

The report says that BSF projects already under way have not been delayed because of the economic conditions, but the extent to which problems in the finance markets will affect BSF is unclear.

"The Department for Children, Schools and Families and Partnerships for Schools (PfS) are in active discussion with banks and other potential lenders and believe that BSF remains one of the more attractive markets for bidders," says the NAO.

"PfS has secured commitment in principle from the European Investment Bank for £300m of investment in the senior debt of BSF PFI projects."

The NAO also found that the department and PfS, the agency responsible for the programme, were "overly optimistic" in their assumptions of how quickly the first high tech schools could be delivered. In February 2008 the department said it wanted to build 200 schools, but only 42 were delivered.

The NAO also found that there are fewer active ICT contractors than construction contractors in the programme. When forming new consortia to bid for projects, construction contractors compete for ICT contractors who have already won bids elsewhere, the report says.

Capital costs have increased by between 16% and 23%, and the cost of establishing LEPs has been high. In the first 15 LEPs, the total cost of designing schools, procuring a private sector partner and setting up the LEP averaged between £9m and £10m. This was due to delays, reliance on consultants, large numbers of sample schemes and alterations to standardised documents.

The NAO says that its report focuses on procurement because it is too early to measure how effective BSF has been in improving education. It calls on PfS to speed up its collection of cost information on BSF schools, including procurement, ICT life cycle costs and PFI contract variation costs.

Tim Burr, the chief auditor, said: "Building Schools for the Future is a highly ambitious programme. Converting that ambition to reality requires robust planning, close cost control and making a success of complex long term partnerships.

"Partnerships for Schools and the department were too optimistic in their early plans, though programme management has since improved. But it remains a real challenge, in difficult market conditions, to deliver the 250 schools a year that will be needed, to include all schools by 2020 as currently planned."